Financial literacy - gcera

Life is like a balance sheet. One wrong entry could change everything.

• True

• False

• Not sure

Who said “Beware of a little expense. A small leak will sink a great ship”?

• Benjamin Franklin

• Your math teacher

• Not sure

... can not buy happiness.

Suppose you had $100 in your savings account with a 2% annual interest. After 5 years, how much will you have in this account if you leave your money to gain interest?

• More than $102

• Exactly $102

• Less than $102

• I do not know

Answer explanation

Your savings account has a 1% annual interest and the annual inflation is 2%. After a year, will you be able to buy more than today using the money saved in this account?

• Yes

• No

Answer explanation

Inflation

Is the following statement true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”

• True

• False

Answer explanation

Diversification risk

You want to borrow EUR 500 from a money lender (M1). He says that you can get it but you must pay him EUR 600 in a month. Another money lender (M2) says you have to pay EUR 600 plus 15% in a month. Which one is better?

• M1

• M2

• I do not know

Answer explanation

Borrowing

Assume a friend inherits EUR 10,000 today and his sibling inherits EUR 10,000 three years from now. Who is richer because of the inheritance?

• My friend

• His sibling

• They are equally rich

• I do not know

Answer explanation

Time value of money

Suppose that in the year 2024, your income has doubled, and prices of all goods have doubled too. In 2024, how much will you be able to buy with your income?

• More than today

• The same

• Less than today

• I do not know

Answer explanation

Money illusion posits that people have a tendency to view their wealth and income in nominal dollar terms, rather than recognize their real value, adjusted for inflation.